Stocks Post Moderate Losses as Chip Stocks Retreat

The S&P 500 Index ($SPX) (SPY) Wednesday closed down -0.58%, the Dow Jones Industrials Index ($DOWI) (DIA) closed down -0.12% and the Nasdaq 100 Index ($IUXX) (QQQ) closed down -1.24%. 

US stock indexes Wednesday gave up an early advance and turned lower, with the S&P 500 and Nasdaq 100 falling to 1-3/4 month lows and the Dow Jones Industrials falling to a 2-3/4 month low. A slump in chip stocks Wednesday weighed on the overall market after ASML Holding NV reported Q1 net sales below consensus.

Also, on the negative side for stocks, JB Hunt Transport Services closed down more than -8% after reporting Q1 EPS below consensus.  Travelers also closed down more than -8% after reporting weaker-than-expected Q1 core EPS.  Autodesk closed down more than -7% after saying it won’t file its annual report within the 15-day extension period as it continues investigating free cash flow and non-GAAP operating margin practices. 

On the positive side, United Airlines Holdings closed up more than +17% after reporting a smaller-than-expected Q1 adjusted loss per share and forecasting stronger-than-expected Q2 adjusted EPS.  Also, UnitedHealth Group closed up more than +2%, adding to Tuesday’s +5% gain after reporting stronger-than-expected Q1 revenue on Tuesday. 

The Fed Beige Book was neutral for stocks as it said the US economy has "expanded slightly" since late February, and firms reported greater difficulty in passing on higher costs.  Also, "several reports mentioned weakness in discretionary spending, as consumers' price sensitivity remained elevated."

Geopolitical risks in the Middle East continue to be a negative factor for stocks on concern Israel will retaliate after Iran fired a barrage of missiles and drones into Israel over the weekend.

US weekly MBA mortgage applications rose +3.3% in the week ended April 12.  The purchase mortgage sub-index rose +5.0%, and the refinancing sub-index rose +0.5%.  The average 30-year fixed rate mortgage rose +0.12 bp to a 4-month high of 7.13% from 7.01% in the prior week.

The markets are discounting the chances for a -25 bp rate cut at 3% for the next FOMC meeting on April 30-May 1 and 19% for the following meeting on June 11-12.

Overseas stock markets Wednesday settled mixed.  The Euro Stoxx 50 closed down -0.06%.  China's Shanghai Composite climbed to a 1-week high and closed up +2.14%.  Japan's Nikkei Stock Index fell to a 2-month low and closed down -1.32%.

Interest Rates

June 10-year T-notes (ZNM24) on Wednesday closed up +15.5 ticks.  The 10-year T-note yield fell -8.0 bp to 4.587%.  June T-notes moved higher Wednesday as a slump in stock boosted safe-haven demand for T-notes.  Also, the strength of European government bonds provided carryover support to T-notes.  Strong demand for the Treasury’s $13 billion 20-year T-bond auction pushed T-note prices up to their highs Wednesday afternoon.  The auction had a 2.82 bod-to-cover ratio, well above the 10-auction average of 2.63, indicating exceptional demand. 

European government bond yields Wednesday moved lower.  The 10-year German bund yield fell -2.1 bp to 2.465%.  The 10-year UK gilt yield fell back from a 5-month high of 4.331% and finished down -3.7 bp at 4.261%.

ECB President Lagarde said output in the Eurozone is "recovering, and we are clearly seeing signs of recovery."

ECB Executive Board member Cipollone said should incoming data confirm that inflation is returning to the 2% target, "it would be appropriate to remove some of the restrictive measures that we put in place in 2023."

ECB Governing Council member Centeno said, "It's time for the ECB to change this monetary policy" due to weak economic growth and progress on disinflation. 

ECB Governing Council member Holzmann said he's "not fully" convinced that the ECB should start cutting interest rates in June, citing the results of Eurozone pay discussions and rising tensions in the Middle East that pose risks for inflation.

US Stock Movers

JB Hunt Transport Services (JBHT) closed down more than -8% to lead losers in the S&P 500 after reporting Q1 EPS of $1.22, well below the consensus of $1.53. 

Travelers Cos (TRV) closed down more than -7% to lead losers in the Dow Jones Industrials after reporting Q1 core EPS of $4.69, below the consensus of $4.90. 

Wednesday's weakness in chip stocks weighed on the overall market after ASML Holding NV reported Q1 net sales of 5.29 billion euros, weaker than the consensus of 5.47 billion euros.  As a result, ASML Holding NV (ASML) closed down more than -6% to lead losers in the Nasdaq 100.  Also, Advanced Micro Devices (AMD), Lam Research (LRCX), KLA Corp (KLAC), Applied Materials (AMAT), and Micron Technology (MU) closed down more than -4%.  In addition, Nvidia (NVDA) closed down more than -3%, and Broadcom (AVGO), Qualcomm (QCOM), and Marvel Technology (MRVL) closed down more than -2%. 

Autodesk (ADSK) closed down more than -5% after saying it won’t file its annual report within the 15-day extension period as it continues investigating free cash flow and non-GAAP operating margin practices. 

US Bancorp (USB) closed down more than -3% after cutting guidance on its full-year net interest income estimate to $16.1 billion-$16.4 billion from a previous estimate of $16.6 billion-plus.

Aptiv Plc (APTV) closed down more than -3% after Guggenheim Securities cut its price target on the stock to $92 from $103.

Urban Outfitters (URBN) closed down more than -2% after Jeffries downgraded the stock to underperform from hold with a price target of $32. 

Airline stocks rallied Wednesday after United Airlines reported a Q1 adjusted loss per share of -15 cents, a smaller loss than the consensus of -57 cents, and forecasted Q2 adjusted EPS of $3.75-$4.25, stronger than the consensus of $3.73.  As a result, United Airlines Holdings (UAL) closed up more than +17% to lead gainers in the S&P 500.  Also, American Airlines Group (AAL) closed up more than +3%.  Delta Air Lines (DAL) closed up more than +3%, and Southwest Airlines (LUV) closed up more than +2%.

Dayforce (DAY) closed up more than +4% after the Canadian government allocated C$135 million for fiscal 2024/25 to improve its pay systems and Procurement Canada recommended Dayforce to replace the existing payroll system. 

GE Vernova (GEV) closed up more than +3% after Raymond James initiated coverage on the stock with a recommendation of outperform and a price target of $160.

UnitedHealth Group (UNH) closed up more than +2% to lead gainers in the Dow Jones Industrials, adding to Tuesday’s +5% gain after reporting stronger-than-expected Q1 revenue on Tuesday. 

Utility stocks rose Wednesday after T-note yields declined.  As a result, American Electric Power (AEP) closed up more than +2% to lead gainers in the Nasdaq 100.  Also, Consolidated Edison (ED) closed up more than +3%.  In addition, PG&E Corp (PCG), Alliant Energy (LNT), and WEC Energy Group (WEC) closed up more than +2%. 

Omnicom Group (OMC) closed up more than +1% after Wells Fargo Securities upgraded the stock to overweight from equal weight with a price target of $106. 

Earnings Reports (4/18/2024)

Blackstone Inc (BX), Comerica Inc (CMA), DR Horton Inc (DHI), Elevance Health Inc (ELV), Genuine Parts Co (GPC), Intuitive Surgical Inc (ISRG), KeyCorp (KEY), Marsh & McLennan Cos Inc (MMC), Netflix Inc (NFLX), PPG Industries Inc (PPG), Snap-on Inc (SNA).

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